Sterling Down on Stalemated Brexit Talks

October 12, 2017

A fifth round of Brexit talks between the U.K. and EU failed to make progress settling the matter of Britain’s debt to the common currency, and without such the EU won’t discuss Britain’s future relationship with Continental Europe. Sterling fell 0.6% against the euro and dollar overnight.

Sentiment toward the euro was buoyed by the news that industrial production in Euroland had jumped 1.4% in August, including advances of 3.0% in Germany, 1.2% in Italy and 1.1% in Spain. Production in the euro area was a healthy 3.8% greater than a year earlier in August.

The dollar fell 0.3% against the Australian and New Zealand dollars overnight and lost 0.2% relative to the yen, but upticks of 0.1% were scored against the loonie and Swiss franc. The yuan stayed steady.

Equities in the Pacific Rim climbed 1.1% in India, 0.7% in Indonesia, South Korea, Taiwan and Singapore as well as 0.4% in Japan, Hong Kong and Australia. China’s market was generally flat. In Euorpe, stocks have so far strengthened 0.3% in the U.K. and 0.1% in Switzerland but also dipped 0.4% in Italy, 0.3% in France and 0.1% in Spain and Germany.

FOMC minutes from last month’s meeting raised some doubts about the likelihood of a third fed funds rate hike this year. Some policymakers want to see more evidence that inflation is on course to rise back to the 2.0% target. The 10-year Treasury yield is two basis points lower in response, and the 10-year German bund and British gilt yields edged a basis point lower each.

European Central Bank Governing Council member Praet said that the bank’s inflation target is still some ways a way from being achieved and defended an extension of quantitative easing into 2018.

West Texas Intermediate crude oil fell back 1.5% to $50.52 per barrel. Comex gold is 0.7% firmer at $1,297.70 per ounce.

Japanese domestic corporate goods prices rose 0.2% on month and accelerated to a 3.0% 12-month rate of increase in September from 2.6% in August and 2.2% in June. Export and import prices each advanced over 1.0% on month and by 9.4% and 13.5%, respectively from September 2016 levels.

Japan’s tertiary index, a measure of service sector activity, again disappointed in August, slipping 0.2% on month. This was the seventh time in the past nine months when the tertiary index failed to increase and left such just 0.6% higher than its year-earlier level.

Japanese bank lending growth slowed to 3.0% last month. On-year growth in the whole third quarter was 3.2%.

French CPI inflation edged up 0.1 percentage point (ppt) to 1.0% in September. In the year to September, Swedish CPI inflation held steady at 2.3%, and Portuguese CPI inflation picked up 0.3 ppt to 1.4%. Irish consumer prices in August were just 0.2% above their year-earlier level.

The Merkel government in Germany revised up projected GDP growth for both 2017 and 2018 to 2.0% and 1.9%, respectively.

In the year to August, industrial production recorded advances of 9.8% in Romania, 6.8% in Hungary, and 6.8% as well in Malaysia. Retail sales in Singapore were 3.5% higher than in August 2016.

The U.K. house price balance index compiled by the Royal Institute of Chartered Surveyors printed at 6.0% in September, unchanged from August’s figure.

Food prices in New Zealand rose 0.5% seasonally adjusted between August and September and accelerated 0.7 percentage point to a 3.0% on-year pace. New Zealand consumer confidence fell 2.8% in October, reversing September’s improvement. Australian home loans climbed 1.0% in August on top of a 2.8% advance in July.

U.S. monthly producer price data and weekly jobless insurance claims will be reported later today. ECB President Draghi and Fed Governors Brainard and Powell speak publicly today. Peruvian monetary officials will announce the result of their latest policy review.

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